Financial Liberalization with Imperfect Markets: Indonesia during the 1970s

An investigation explores whether financial interventions by a government are harmful or beneficial. In particular, a case example of governmental interventions in Indonesia is examined. By the early 1970s, Indonesia had successfully introduced a series of financial liberalization measures as part o...

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Bibliographic Details
Published in:Economic development and cultural change 1987-04, Vol.35 (3), p.581-599
Main Author: Bolnick, Bruce R.
Format: Article
Language:English
Subjects:
Agricultural credit
Bank credit
Bank loans
Capital markets
Central banks
Credit
Credit policy
Development economics
Economic development
History
Indonesia
Interest rates
Intervention
Investment credit
LDCs
Liberalization
Monetary policy
Public finance
State banks
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Summary:An investigation explores whether financial interventions by a government are harmful or beneficial. In particular, a case example of governmental interventions in Indonesia is examined. By the early 1970s, Indonesia had successfully introduced a series of financial liberalization measures as part of a sweeping program to overcome the chaotic legacy of the Sukarno era. However, during the following decade, the ''New Order'' introduced what appeared to be increasingly heavy doses of financial repression. Despite this intervention, however, real gross domestic product grew at an annual rate of 7.6%. It is argued, therefore, that, under the circumstances, selective interventions were sensible in principle and may well have been beneficial in practice. In conclusion, intervention cannot simply be identified with repression, and liberalization does not always promote efficiency in a world of imperfect markets.
ISSN:0013-0079
1539-2988
DOI:10.1086/451605